The U.S. Dollar Falls by Fall

Last week, three stories acted as signposts for the direction of the U.S. Dollar value. The first is about a letter President Obama sent to members of the G20 (Group of 20 major industrial countries) in advance of next weekend’s meeting in Canada. The President’s letter asked members to “reaffirm our unity of purpose to provide the policy support necessary to keep economic growth strong.” The policy he is talking about is to print money and run monstrous deficits to keep the world economy afloat. The talk in Europe is just the opposite. The EU these days is all about austerity and budget cuts which are hardly pro-growth. The Associated Press reported the story this way: In the letter, Obama said that the June 25-27 summit should also focus on efforts to stabilize public deficits in the “medium term,” a reference to the administration’s position that governments need to run huge deficits currently to provide the stimulus needed to ensure a sustained recovery but then move in future years to deficit reduction efforts. (Click here for the entire AP article.)

The second story illuminating the dollar’s path comes from Alan Greenspan. The former Fed Chief gave a warning about how the U.S. may soon reach its “borrowing limit.” A Bloomberg story quoted Greenspan saying, “The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms,” Greenspan said. The “very severity of the pending crisis and growing analogies to Greece set the stage for a serious response.” (Click here for the Bloomberg article.) Please note Greenspan’s reference for the U.S. “commitments” that it, “will be unable to meet in real terms.” That surely means the government will simply print money to pay its bills. The Federal Reserve could end up being the buyer of last resort for America’s debt, and that is highly inflationary.

This brings me to the third story indicating the future direction of the dollar. The headline says it all: “Gold hits record as investors seek alternate asset.” (Click here for the complete story.) The only conclusion you can draw is investors are seeking a stable store of wealth. According to world renowned gold expert Jim Sinclair(jsmineset.com), that spells trouble for the dollar. Sinclair said, “. . . that’s not a pleasant conclusion because it speaks of a currency system in the entire Western world that is being significantly challenged.”

In an exclusive interview with USAWatchdog.com, Sinclair compared the U.S. to Greece– the same as Greenspan. Sinclair said the dollar’s true weakness has been concealed because the attention has been on Europe. Sinclair said, “We’re rolling over in this so-called economic recovery . . . It’s not a pretty picture, and the focus will come off Europe as soon as all the currency traders have made all the money . . . (then) it’s coming right back here. . . You look over here and you see 33 states are headed towards bankruptcy. What’s the difference between that and Greece? There’s none.”

I asked Sinclair when will the dollar start plunging? He said, “The time horizon, I think, is four months.” A plunging dollar will quickly cause higher prices for goods and services and, if things get really bad, Sinclair says, “If, in fact, this thing gets out of control, you’ll see decreasing supply (of goods) because of economic disruption of the means of distribution.”

Under an extreme loss of value for the buck, you can forget about cheap oil and gasoline. Sinclair says, “If the dollar falls out of bed, they shoot to the moon.” Sinclair thinks what is taking place now is a “change in psychology and a loss of confidence that are now beginning to show themselves in market terms. You will still have the dollar around. It will still be in bank reserves, but its buying power will be severely reduced.”

This change in psychology is driving gold to one record high after another. Since 2001, Sinclair has been calling for gold to reach $1,650 a troy ounce by January 14, 2011. Some of Sinclair’s contemporaries are calling for gold to be much higher by next summer. $5,000 per ounce by June is one prediction. Sinclair says, “. . . that only occurs if the whole thing goes splat,” and that is also a real possibility.

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Greg Hunter

Greg is the producer and creator of USAWatchdog.com. The site’s slogan is “analyzing the news to give you a clear picture of what’s really going on.” The site will keep an eye on the government, your financial interests and cut through the media spin. USAWatchdog.com is neither Democrat nor Republican, Liberal or Conservative. Before creating and producing the site, Greg spent nearly 9 years as a network and investigative correspondent. He worked for ABC News and Good Morning America for nearly 6 years. Most recently, Greg worked for CNN for shows such as Paula Zahn Now, American Morning and various CNN business shows.

Comments

George06/21/2010 •

Greg,
Love the way you pulled this together.

The US dollar, AKA Federal Reserve Notes, is backed by the full faith and credit of the US Government, AKA the US Tax Payer. Our buddies in Congress have spent us bankrupt and want to spend more. They don’t seem to understand balanced budgets, credit limits or basic math for that matter.
So at what point does Obama go FDR on us? FDR took up all of the Gold and doubled the dollars in circulation by cutting the value of the dollar from $20/per ounce of Gold to $35/per ounce of Gold. When does Obama, in the name of saving the people from themselves, takeover all our 401-K’s and IRAs? My thoughts are that they will do that before the Fed Reserve buys too many Treasuries.

So Greg, the market is up again today. Are these merely market manipulators hoping to persuade gullible people to send money from cash to the market? Are these day traders making a fortune? Gold went up and is now down, granted it is still high. Silver is stagnating.

Are these doom and gloom predictions as dire as they seem? Apparently the stock market is not worried about the “Greek syndrome” any longer

John,
I go through great pains to project an accurate picture of what is going on. (experts, links and sources) The fact is we are in a dire economic cycle. The Yuan story is negative for the U.S. dollar. We can not export our way out of the debt mess we find ourselves in currently. Thank you for your question and comment.
Greg

I seem to recall what we know refer to as a “Fool’s: rally during the period we call the Great Depression. John, contrary to popular belief, the market did not go straight down. It bobbed up and down with great volatility. I hope it’s not lost on you that we just broke those volatility records in the last year or so.
The US Government and others are manipulating the currencies and precious metals. Most ALL Central banks are buying Gold except for the US. I am not saying put everything in gold but if you had moved out of the S&P 500 five are 6 years ago into a pure gold portfolio, you’d have been called an idiot by your broker then and be considered a genius now.
The stock market is not a level playing field for anyone under mid 8 figures. As far as the day traders, they may be making some but most likely, the big stock trading houses are raping all the “small” people.

At the mineset, JS’s introduction to today’s Greg Hunter post invokes the term “gawd”. If my instincts are correct this is borrowed from the best movie ever made (or very close to it), “High Plains Drifter”.
No one has ever enunciated “gawd” as beautifully as that actor who played the preacherman in Lago, but it’s still fun to try. Did I get off subject?……….sorry…back to business.

Thank you for this article. Mr Sinclair is often referred to as doom & gloom but he did get the gold at $1250 correct. And John, about that stockmarket: The German Weimar stockexchange reached new highs every day also. One cannot borrow one’s self to prosperity. Got gold?

I don’t disagree with holding gold positions, like physical gold bullion. The question becomes if and when you sell your physical gold bullion sometime in the future, what currency do you accept for payment since none has any backing?

James.
The currency question will work itself out. What says you will not be able to use your gold as a currency? Sounds like you’ve got the hard part done already. You have gold! Thank you for the question and comment.
Greg

Greg,
Excellent work sir on connecting some important dots.
THE crucial underlying issue is the unraveling of the debt based fiat currency system, and the rotation into the currency of last resort.
It is now going on world wide, and barely started here in N. America, as the ongoing demonitization of the oldest currency has been very effective since FDR did his number on it.

The much esteemed and respected Mr. Sinclair and others who are forced to be cautiously conservative on futurism may be proven to have been wildly conservative if the DOW / Gold ratio returns to its mean reversion of 1 / 1. If you do not ahve a chart handy, let me know and I sill send one along.

This blogger has a detailed analysis of gold price probability on a bell curve which one can use to choose what one wishes using his list of issues for the continued demise of the debt based fiat currency system around the world. If one does not understand that this time is really very different, just check the status of the debt to GDP ratios of the major countries. This very smart blogger is Friend Of A Friend of Another and has been posting for a long time..
Serious analysis.http://fofoa.blogspot.com/2010/06/how-can-we-possibly-calculate-future.html
Keep up the good work.

Great article Mr Hunter. I think Greece is a small preview of what we can expect yet unfortunately I believe it will be worse here in the US. We have Greece 33 times, at least. It is scary to think of not only how citizens will react but how our Government will react. I wish I had a remote Island to escape to.

Vincex,
What pray tell will drive it higher? The 33 bankrupt states. The $6.3 trillion we ignore with sour Fannie and Freddie liability. Re instituting mark to market accounting for the banks, the soon to be $14 trillion national debt? The list goes on. Thank you for your comment eventhough we disagree on the U.S. dollar.
Greg

Greg,
I don’t know that it will go to 100, but if the crooks at Goldman Sucks and JP Morgan want to force it to 100 that’s exactly where it will go. None of what’s currently going on in the markets is supposed to make any sense. It’s all about who can get the most counterfeit money from Bernanke so they can force things around to suit themselves.

In the gym locker room again today and saw a talking head on CNBC stating how the dollar had exceeded all expectations for the year. When the guest “expert” chimed in that the dollar was simply benefiting from the problems in Europe the host chuckled sarcastically.

Coincidentally, I just finished reading this article on jsmineset before checking here!

One question that maybe you will not want to take on, but I must ask anyway. I fully understand you are not in the practice of giving investment advice, and I fully understand we are in uncharted waters here, but over the past few days, I’ve read two (2) very negative articles re: those of us who are striving to accumulate gold bullion (coins) for purposes of riding out the oncoming storm. These are not the same folks who are usually negative gold either, that’s why I was surprised to see them.

My question is: Gold stocks vs physical gold?. If you are to small a player to really hedge yourself with the real deal, is it worthwhile to invest in the gold miners? Specially if gold stocks is seen as stocks and not bullion.

If the currency crunch comes to pass, capital gains will be the least of our worries. It will be very difficult for a government that can’t tell the difference between stimulus and slush funding to get organized to tax barter transactions. If things get really bad our incompetent bureaucrats will be scrambling too. I have gold and silver, hoping to never have to use these to survive; this talk of paying for gains is another example of the forced normality we live in today.

MadMarkie,
There are so many warning signs. I have written about most of them on the site. The latest red flag is BP and the Gulf gusher. If BP goes under we will have another Lehman crisis on our hands. I like a safety deposit box, provided you regularly check the health of your bank. Thank you for your comment and support!!
Greg

“If, in fact, this thing gets out of control, you’ll see decreasing supply (of goods) because of economic disruption of the means of distribution.”

Herein the the greatest threat. Everything in the US moves by truck. Independant truckers (owner/operators) are dropping like flies. Inflation will drive costs out of site and distribution fails. Why do you suppose Buffet bought railroad stock?

People lament the high price of gold, but small amounts of placer gold is available fo purchase. Better a dib of placer gold than no gold at all. Even paying premiums over spot is far better than no gold at all. It IS all about wealth preservation. Forget price and think value. Junk silver coin is far better than $USD. For that matter, real toilet paper will retain value.

Denny,
According to shadoowstats.com inflation is running (now) at 9.2% if it was calculated the way the government did it in 1980. All my sources say will go much, much higher. Thank you for your question.
gREG

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Greg is the producer and creator of Greg Hunter’s USAWatchdog.com. The site’s slogan is “analyzing the news to give you a clear picture of what’s really going on.” The site will keep an eye on the government, your financial interests and cut through the media spin.

USAWatchdog.com is neither Democrat nor Republican, Liberal or Conservative. Before creating and producing the site, Greg spent nearly 9 years as a network and investigative correspondent. He worked for ABC News and Good Morning America for nearly 6 years. Most recently, Greg worked for CNN for shows such as Paula Zahn Now, American Morning and various CNN business shows.